An Examination of Commercial Litigation Funding in the United States

in Commercial Litigation/Finance/Volume VI

By Chance King


Litigation funding, also known as third-party financing or legal finance, has a rich and evolving history in the United States. It refers to the practice where a third party provides financial support to a plaintiff in exchange for a portion of the potential monetary proceeds from a lawsuit. Over the years, litigation funding has played a prominent role in the American legal landscape, impacting access to justice, legal ethics, and litigation dynamics. This article will explore the history of litigation funding in the United States, the legal and ethical debates surrounding it, and analyze whether or what kind of regulation over the industry would be appropriate.

Origins of Litigation Funding and Its Progression to the Modern Era 

The concept of litigation funding can be traced back to ancient Rome, where it was known as “champerty.” Champerty was considered a crime in medieval England and colonial America, primarily due to concerns about third parties encouraging unnecessary litigation for petty personal disputes and profiting from someone else’s lawsuit. However, over time, attitudes began to shift, and the prohibitions on champerty gradually relaxed. 

The modern era of litigation funding in the United States can be traced to the late 20th century. The 1970s brought the emergence of “attorney funding” as a way for law firms to finance their cases, primarily in personal injury and product liability litigation. Attorney funding involves lawyers taking cases without charging an hourly fee, but in consideration for their efforts, they receive a portion of the proceeds of the trial. The personal injury industry standard for contingency fees is roughly 33% of the earnings from litigation. The practice evolved into more methods of litigation funding, including a formalized litigation financing structure, with specialized investment firms providing funding to plaintiffs in exchange for a share of the eventual settlement or judgment. 

Commercial litigation focusing on non-personal injury cases rose to prominence in 2006 when Credit Suisse Securities created a litigation risk strategies unit. A recent case also brought attention to the commercial funding industry. Peter Theil, a multibillionaire, and co-founder of PayPal, agreed to fund Hulk Hogan’s defamation lawsuit against Gawker. Theil reportedly chose to support Hogan’s defense for financial and personal reasons, as an earlier story published by Gawker outed Theil’s sexual identity as gay.[1]

Today, commercial litigation funders typically expect a return of close to double their money when they invest in a case that wins. Currently, the global litigation funding investment market is estimated at US$ 15.8 billion in 2022 and is expected to grow around 9% during the forecast period of 2023-2028.[2] In the United States, Congress gives states the power to regulate the industry. Given that the vast majority of states have not taken any action to regulate, this gargantuan industry is largely unregulated. 

Benefits of Litigation Funding 

Proponents of litigation funding proclaim that the industry allows plaintiffs to bring meritorious claims that they otherwise would not carry, which promotes justice in our society. The most prominent law firms in the country now charge over $2,000 an hour for legal services by their most senior partners.[3] Prominent firms receive a lot of third-party litigation funding, as their rates are untenable for most Americans. As of 2019, the Federal Reserve’s Survey of Consumer Finances reported that families, on average, have a mere $5,300 in savings available.[4] Further, in 2022, the US Census observed that the US Median Household income was $74,530.[5] These statistics indicate just how unaffordable legal services are for most families in America, as the cost for a few hours of work by a prominent firm could potentially deplete the average family’s savings entirely.

Many defendants in litigation funding cases are Fortune 500 corporations, that sometimes settle, but otherwise fight hard against parties they sense cannot withstand a long and costly legal battle. A significant number of claims against Fortune 500 companies are class action lawsuits, as scores of consumers use the products and services these companies sell. A class action lawsuit is a legal action in which a group of individuals with similar claims collectively sue a defendant. Class action suits allow for the efficient resolution of numerous similar claims in a single lawsuit, providing a mechanism for individuals to seek redress for shared harm. They tend to be especially expensive, as the number of plaintiffs makes the proceeding more complex and long-lasting. Class actions make up a significant portion of many of the largest litigation-funders firms’ case portfolios. Proponents of the practice claim that by giving plaintiffs the financial wherewithal to bring suits, seemingly invincible corporations can be held accountable for the damage they may have caused, leading to better outcomes for citizens in our society.

Potential drawbacks 

Critics of litigation finance argue that funders exert inordinate control over plaintiffs in the cases they invest in and take too large of a portion of the earnings in the case. Litigation funders state that, on average, they double their principal investment on winning cases.[6] Critics say that it is too high of a return. Funders also can take close to 50% of the potential earnings of a lawsuit, depending on the case. Critics proclaim that funders receive too significant of a portion of a lawsuits earnings when the litigation funders are not the ones who have been the victims of injustice. Many plaintiffs that utilize litigation finance later argue that the returns funders receive are “usurious.” Usurious is a legal term used to describe lending money at rates so high that they become legally unenforceable. Further, many of the plaintiffs who utilize litigation funding are not affluent and are in dire need of the money to help them remedy the injustice they have experienced. 

However, litigation funders assert that the returns are warranted because they take on significant risk by funding cases. If the party in the matter they finance loses, they lose the entirety of their principal investment. Further, firms state that the plaintiffs’ they work with could not bring claims without them and thus the significant portion of the proceeds received is warranted. 

Opponents of the practice also argue that funders exert too much control over plaintiffs in their cases because they can direct parties when to settle or go to trial, even when the decision may not align with the plaintiff’s best interest. For example, in a case where a settlement is offered that could satisfy the plaintiff’s financial needs, but it fails to give a significant return to the financer, the third-party funder may push the plaintiff to take the case to trial when it is in the plaintiff’s best interest to settle. This pressure could lead to a plaintiff making a decision not aligned with their best interests. The law has long given plaintiffs the sole power to make strategic legal decisions, such as whether to settle or go to trial.[7] Many litigation funders claim that they don’t direct the client on strategic decisions. However, opponents note that funders inherently have leverage over the plaintiffs and use this to exert power on parties to get more favorable results for their own firms, instead of making decisions that would be more beneficial to plaintiffs. For these reasons, some critics argue that litigation funding should be banned, while others assert that there should be more robust regulation of the industry.  

Potential and Recommended Legislation 

Currently, there is not any significant regulation of the litigation funding industry. Some states have regulated aspects of the relationship through court decisions. For example, a Delaware court ruled that written communications between a third-party funder and an attorney were protected from discovery under the work product doctrine because they contain the “lawyer’s mental impressions, theories and strategies about the case, which were only prepared ‘because of’ the litigation.”[8] The “work-product doctrine”[9] of the federal rules of evidence protects from discovery by the opposing party “documents and tangible things that are prepared in anticipation of litigation or for trial.” This issue has not been addressed by many courts in the United States, and it is unclear whether other jurisdictions would agree with the Delaware court’s decision.              

Further, funders have largely persuaded legislatures and courts that their returns are not usurious and are legally enforced based on the terms of their contractual agreements with plaintiffs. However, a Denver probate court recently decided to strike an $8 million award to a litigation funding group,[10] finding that the significant return was a disguised form of usury interest rate lending. The award was based on a 2011 deal in which a plaintiff, Paul Horn, agreed to give a litigation funder 5% of his award or $5,000,000, whichever was greater in his case, to obtain a payment based on his equity in a telecommunication company that sold to AT&T. The deal also had a unique twist – Horn agreed with the funders to not accept a settlement under 90% of what he believed his case to be worth (which was $100,000,000). This stipulation contradicts many deals that allow plaintiffs to decide when they can and cannot settle. Horn later settled for $57,000,000, and the funder sued for breach of contract. Horn also later argued that the $5,000,000 the funders claimed he owed was usurious because it was more than ten times the principal investment and declined to pay the funders. Having failed to pay, the funders charged Horn interest for years until an internal arbitration judge awarded the funders the $8 million that they were claiming. The legal finance firm attempted to enforce this award in a Denver probate court, where Judge Elizabeth Leith found the award was usury and thus enforceable despite the chance that the firm could have lost its entire principal investment. This case is different from most funding disputes as most agreements have no settlement acceptance stipulation. Still, the opinion was based purely on the rate of return the funders received and thus highlights that some judges may strike funder returns as usury. 

Additionally, Senator Anna Caballero recently sponsored a Litigation Funding Act in California. The Predatory Lawsuit Lending Prevention Act (SB 581) requires disclosures of litigation financing for a plaintiff only if a judge orders but does not require any form of disclosure for commercial litigation funders. The Act initially required all parties in lawsuits in California state courts to publicly disclose whether outside investors or lenders were funding the cases. Proponents of litigation funding lauded the amendment to the Act as a victory for the privacy of plaintiffs and the litigation finance industry. Most states don’t currently require any disclosures about litigation funders’ involvement in suits; however, New Jersey’s federal court requires general third-party financing disclosures, and recently, the Chief US District of Delaware Judge, Colm F. Connolly, has required disclosure for certain patent cases in his courtroom.[11]

Maya Steinitz, a law professor at the University of Iowa and an expert in the field of litigation finance, suggests litigation funding is essential and should not be prohibited but regulated in a manner that protects consumers.[12] She asserts that the plaintiff’s right to choose is paramount and should be protected through legislation. She further argues that they should be protected from usurious lending terms, but that funder’s rates of returns should not be limited to a point in which it disincentivizes investment. 


Based on the current state of the industry, it is clear that action should be taken to regulate these businesses to ensure that plaintiffs are protected. At a minimum, legislation should be brought forth to ensure that a plaintiff’s right to make decisions for their own case remains protected and that lawyers are obligated to speak with clients about this decision – absent the presence or pressure of the third-party funder. Accordingly, contract terms that inhibit a plaintiff from accepting a settlement under a certain amount, such as in the Horn case, should be barred. This would help protect a plaintiff’s right to choose how to pursue their case, which is an important right extended to every plaintiff. Moreover, the decisions in the previously mentioned Delaware court, to deny the discoverability of attorney and funder discussion, were proper. These discussions almost certainly reveal the attorney’s mental impressions/strategy on the case as funders decide to invest largely based on the attorney’s opinion on the likelihood of the case’s success. Allowing an opposing party access to an attorney’s strategy would lead to unfair outcomes by giving the opposite party information they cannot generally recover under federal and state rules of evidence. By blocking discovery of communications between the funder and attorney, legislation will prevent unfair disclosure of opposing strategy, which is an integral component of our judicial system.Further, there should be a minimum percentage of the profits that plaintiffs are obligated to receive when they win their case, and legislation should prevent financing agreements that allocate an unjustifiable menial amount of the proceeds from a case to the plaintiff. However, litigation funders take significant risks and provide immense value to our legal system by allowing non-wealthy plaintiffs to bring cases they otherwise could not afford. For this risk and value provided, they have earned the right to a significant return on their investment. However, these returns should not undermine plaintiffs’ rights to be compensated for the harm suffered. For the aforementioned reasons, it is clear that state governments must regulate the litigation funding industry by protecting plaintiffs while simultaneously maintaining an environment that incentivizes these vital investments. 

[1] Matt Drange, Peter Thiel’s Lawyers Now Say He Was Financially Motivated In Funding Hulk Hogan’s Gawker Lawsuit, Forbes, (Aug. 17, 2023),

[2] Global Litigation Funding Investment Market is Poised to Touch US$ 24.3 Billion by the End 2028, Driven by Increasing Awareness About Litigation Financing, Global News Wire, (Aug. 9, 2023),

[3]Roy Strom, Big Law Rates Topping $2,000 Leave Value ‘In Eye of Beholder’Bloomberg Law, (June. 9, 2022)

[4]The Average Savings Account Balance, U.S. News & World Report (July. 18, 2023)

[5]Income in the United States: 2022, United States Census Bureau (September 12. 2023)

[6] Lesly Stahl, Litigation Funding: A multibillion-dollar industry for investments in lawsuits with little oversight, CBS News, (July. 23, 2023),

[7] Id.

[8] Marla Decker, Delaware Recognizes Distinction Between Litigation Finance And Champerty, (last visited November. 24, 2023).

[9] Fed. R. Evid. 26(b)(3)A).

[10] Roy Strom, Unlikely Colorado Court Vexes $8 Million Litigation Finance Win, (October. 19, 2023)

[11] Alison Frankel,  Delaware judge justifies litigation funding “inquisition” in thriller order, (December, 22, 2023)

[12]  Lesly Stahl, Litigation Funding: A multibillion-dollar industry for investments in lawsuits with little oversight, CBS News, (July. 23, 2023),